Torrid 2015 for emerging markets

LONDON: It was a torrid 2015 for emerging markets, with a mix of weak global growth, a slump in commodity prices and a strong dollar making it the worst year for some of the big countries since the height of financial crisis.

Despite a mini-rebound over the last week, MSCI’s benchmark emerging market equities index, which covers 23 of the main developing economies, is down over 17 percent for the year and almost 10 percent since October.

Though 2011 – the peak of the euro zone crisis – was marginally worse overall, for heavyweights such as Indonesia, Malaysia, Nigeria and Saudi Arabia it has been the toughest since the global crash of 2008.

China, the industrial heartbeat of the world economy, saw its stock markets lose roughly half their value during the middle of the year when worries about growth emerged.

Their meltdown was one of the big stories of the year, although they have since recovered around 10 percent of that drop. Thanks to a flying first half, they are still up 8 percent for the year in dollar terms.

Currencies have been battered almost universally, largely due to the dollar which rose in anticipation of a US interest rate rise finally delivered this month. But plenty of country-specific politics added to the mix.

The Kazakh tenge and Argentinean peso are down 45 and 35 percent respectively, having both been ‘floated’ by governments that could no longer afford to artificially protect their currencies.

Azerbaijan did the same on Monday. Its menat dropped over 30 percent and means most of Russia’s big former Soviet trading partners have devalued this year in a bid to stay competitive with a rouble now down around 18 percent.

But it has been the big names that have really shaken emerging markets (EM) this year.

Brazil’s real is down an eye-watering 33 percent and its bonds are down almost 14 percent, the worst of any major EM, amid a deepening political crisis and recession that has just cost it its investment grade credit rating.

South Africa has been another country beset by problems. The rand has lost 23 percent and hit an all-time low last week after a clumsy sacking of the country’s finance minister. Its bonds are also down 5 percent.

Africa’s biggest economy, Nigeria, has seen its stock market slump 22 percent following the plunge in its main revenue earner oil, while a 17 percent fall in shares in Saudi Arabia, the world’s top crude exporter, has been mirrored across much of the Gulf. Turkey has been another of the countries under pressure.

Election chaos earlier in the year, an unpredictable central bank, tensions with Russia and a worry its economy is potentially one of the most vulnerable to higher US interest rates have seen the lira and Istanbul stocks slump almost 20 percent in dollar terms.

Turmoil in nearby Egypt has weighed heavily on markets there too.

The Indonesian rupiah and the Malaysian ringgit have lost 10 percent and 19 percent respectively, while Colombia’s peso is another victim of the oil price plunge, down almost 30 on the year.

But there were some big winners that rewarded the brave.

Despite sanctions over the Ukraine crisis and the 35 percent slump in its main export oil, Russian bonds are up roughly 20 percent for anyone who bought at the start of the year.

Another surprise was Hungary’s BUX stocks index, which is up more than 40 percent and the world’s best performing bourse in 2015. That was largely down to previous moves by the government that meant the country’s banks and mortgage holders weren’t hit when the Swiss National Bank scrapped the franc’s exchange rate cap in January.

In dollar terms, Hungarian stocks have risen more than 30 percent.

Moves in the so-called ‘toxic trio’ were even wilder. Ukraine’s hard currency bonds have returned over 40 percent, following its well-received debt restructuring, making them the world’s best debt market performers.

The other two sides of that triangle, Argentina and Venezuela, are number two and four top performers, having gained 20 and 11 percent respectively.


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